A Top Dividend Stock That Deserves a Place in Your TFSA

I usually don’t recommend volatile oil stocks for investors who are building their savings through a Tax-Free Savings Account (TFSA). That space should be filled with less cyclical and stable dividend stocks that are famous for growing their payouts steadily. But Suncor Energy Inc. (TSX:SU)(NYSE:SU), Canada’s biggest oil sands producer, is an exception due its stable business model and its ability to reward investors regularly. Let’s have a deeper look at why this stock might be a good fit for your TFSA. Business model Suncor is Canada’s integrated energy company with a portfolio of high-quality assets, including oil sands…

To keep reading, enter your email address or login below.

Register by giving us your email below to continue reading all of the content on the site. Also receive a free Email Newsletter from the Motley Fool. (You may unsubscribe any time.)

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls.
I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.

I usually don’t recommend volatile oil stocks for investors who are building their savings through a Tax-Free Savings Account (TFSA). That space should be filled with less cyclical and stable dividend stocks that are famous for growing their payouts steadily.

But Suncor Energy Inc.(TSX:SU)(NYSE:SU), Canada’s biggest oil sands producer, is an exception due its stable business model and its ability to reward investors regularly. Let’s have a deeper look at why this stock might be a good fit for your TFSA.

Business model

Suncor is Canada’s integrated energy company with a portfolio of high-quality assets, including oil sands extraction, refining, and marketing the energy products to industrial, commercial, and retail customers. In Canada, Suncor operates more than 1,500 Petro-Canada stations.

During the oil market slump in 2014, Suncor used its cash to acquire assets in oil sands that were selling cheap, including a $4.2 billion deal to acquire rival Canadian Oil Sands Ltd. in 2016. The company’s expanded its asset base, and its diversification has positioned the company to perform better than other oil players, especially in an environment that is not very conducive for Canadian oil producers.

The company’s operating profit, which excludes one-time items, jumped 21% to $985 million, or $0.60 a share, in the first quarter. Analysts had predicted earnings of $0.52 a share.

‘‘The value of our integrated model was front and centre this quarter as strong financial results from our downstream and offshore assets helped to offset the impact of lower oil sands production, and our refineries were able to fully capture the lost value associated with unfavourable heavy crude differentials at oil sands,’’ said Steve Williams, president and chief executive officer, in the earnings statement.

Reliable dividend payer

For your TFSA, Suncor stock is a great addition. The company has been sending dividend cheques to investors for about quarter a century. That long track record suggests that its revenue generation capacity is strong enough to withstand the ups and downs in the oil market.

During the first quarter of 2018, Suncor approved a 12.5% hike in its quarterly dividend and an additional $2 billion in authority for share repurchases. The company also repurchased and cancelled $389 million of its own shares in the first quarter for a total of $1.8 billion to the end of the quarter.

The bottom line

Trading at $49.13 and with an annual dividend yield of 2.90%, Suncor stock is now trading 6% higher for the year amid talks of the federal government intervention to speed up the construction of new pipeline capacity. Investors probably have missed the bottom its stock hit in March. But I think Suncor is still an attractive buy for income investors, given the company’s consistent record of outperforming and providing steady dividend income.

For more than five long years now, our Motley Fool Canada analyst team has yet to give readers comprehensive guidance on the Canadian energy market. Now, a very specific combination of market factors has convinced our investing team that for the first time since Motley Fool Canada was founded, it’s finally time to go “ALL IN” on energy.

In a special upcoming presentation, we’ll reveal the factors that led us to this crucial decision, as well precisely how YOU could take advantage of what can only be described as a potentially generational energy shift. There’s a good chance some of them will genuinely surprise you.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.